Overlooked Insurance Coverage for Small Nonprofits

My job as an advisor is always to educate an insured on the importance of a variety of insurance policies. Sometimes, though, regardless of my attempts and explanation, a client might think I’m just trying to unnecessarily super-size a value meal. If I had a nickel for every time I heard, ‘There’s no way that would happen to us,’ I’d be a rich fellow indeed.

What keeps me up at night is the possibility that it will, could, and does happen to organizations all the time. I’ve had this conversation quite a few times(paraphrased):

Him: “So, does General Liability cover me if my volunteer pulls up in his/her vehicle and accidentally hits a client in the parking lot?”

Me: “No, that would be Hired and Nonowned Auto Liability, which is included in this proposal for $100 annually.”

Him: “Then why do I need General Liability?”

Me: “Any number of things could happen to a client or third party due to your negligence. A person could trip and fall due to poor site maintenance. You could accidentally start a fire at a fish fry special event. (etc.)”

Him: “Well, I don’t need to spend $100 on the hired and nonowned liability.”

Me: (after some discussion) “Please sign this form to confirm that it was offered and rejected.”

My fingers remained crossed.

I understand budgetary restrictions, but the key question to ask: “Can you budget for a few hundred dollars in light of the outside possibility of a door-closing event?”

Here are three key coverages that are sometimes overlooked:

1. Crime/Employee Dishonesty: Fortunately, granting agencies and governments often require this coverage before doling out funds to charitable organizations. Common excuse: I’ve known our bookkeeper/treasure/office administrator/sister/cousin forever; they are the only one with access and would never take a thing. Problem, we’ve seen two multi-hundred thousand dollar claims come through due to forgery by long-term administrative personnel–trusted employees.

2. Employment Practices Liability Insurance (EPLI): Common excuse: We don’t have any employees. Response: A great feature of Nonprofit Directors and Offices Liability Insurance (D&O) is that it normally includes EPLI (as a separate coverage within a tight little package).

I’ve had volunteer-only organizations balk at the inclusion of EPLI. It is key to know is that included in the definition of ‘Employee’ in nonprofit EPLI is ‘volunteer.’ So, any discrimination or sexual harrassment covered event would be covered if it involves volunteers. Further and perhaps even more important, these policies normally include third party discrimination claims. Just imagine an organization being sued for denial of services due to the race of a potential client. It’s not far-fetched. EPLI is where this situation would be addressed.

3. Replacement Cost Limits for Property Coverage: Common excuse: All our stuff is donated, we don’t need $100,000 in property coverage, just $20,000. What something is worth and what something costs to replace brings us back to insurance 101. If you just want to take a check and be done with it or spend all sorts of time and resources finding more donated items to replace your donated stuff, then by all means, stand pat at $20,000.

If, on the other hand, you want to be up and running and continue your services and not send one of your professional employees on errands to every thrift shop and Goodwill in town to find more secondhand stuff, then opt for the higher limit. Think a bit about how much it would take to just head out to a box store to buy items to replace your things and choose that limit. The premium difference is usually slight.

4. Umbrella or Excess Coverage: An umbrella policy provides an additional layer of limit over general liability and other liability coverages. A lot of my nonprofit clients indicate that they have budgets no more than $100,000 or even down around $10,000. The executive directors do not feel an umbrella policy is necessary. An important thing to consider is whether or not the operations could lend themselves to a high dollar claim (i.e. services for children or services that have a heavy transportation component). Another consideration is the assets of the employees, executive directors, or board members should they be named personally in a claim.

My main hope is that a claim doesn’t precipitate the need for coverage that wasn’t there previously.

Have you had a claim that made you wish you had a more complete insurance package? What coverage or coverages were you missing?